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Qualcomm Is Said to Cut Up to Half of Jobs in Data Center Unit

Ian King (Bloomberg) -- Qualcomm Inc. is cutting about 280 jobs in its data center chip unit, scaling back efforts to break into the server market to pare expenses and keep promises made to shareholders.

The company will eliminate 241 positions at its design center in Raleigh, North Carolina, and 43 in California, according to notices filed with those states. The total number of cuts, including those not covered by such notices, will represent a third to half of the server-chip unit’s employees, according to a person familiar with the process. The reduction comes on top of the previously announced elimination of about 1,500 workers across the company.

Qualcomm evaluated future opportunities for the data center business, ultimately deciding that gaining ground in the broader market for server chips -- primarily competing with Intel Corp. -- would take too long. The division will now concentrate on providing chips to a couple of the largest operators of cloud computing data centers and Chinese customers such as Alibaba Group Holding Ltd., Tencent Holdings Ltd. and Baidu Inc. through a joint venture in that country. Qualcomm also held discussions with several possible investors and buyers for the unit, but decided to persevere with a revised strategy, President Cristiano Amon said.

“Qualcomm remains committed to data center opportunities and is not divesting the assets,” Amon said on Thursday. (DCK: Bloomberg reported in May that the company was planning to exit from the data center market.) “We are reducing our investments in the data center business but remain committed to our China JV and to refocusing our R&D efforts for upcoming compute opportunities.”

Qualcomm’s narrowed ambitions represent a setback for broader industry efforts to secure a toehold for ARM Holdings Plc technology in the server market. Chipmakers have been trying for years to provide owners of large data centers – companies such as Alphabet Inc.’s Google and Amazon.com Inc.’s Amazon Web Services – with processors to run them. ARM’s chip technology dominates in smartphones, but hasn’t made much headway on Intel’s home turf of computing.

Prospective customers such as Microsoft Corp. had publicly touted their interest in using Qualcomm’s Centriq server chips in their data centers, as alternatives to Intel’s Xeon.

San Diego-based Qualcomm, the biggest maker of mobile-phone chips, was the largest company to publicly take aim at Intel’s 99 percent share of the $14 billion market for server processors. Intel’s stranglehold means that the majority of industry software is written for those chips. In addition to fielding chips that can compete, ARM-based technology providers need to make sure there’s enough code out there to do the computing work.

Qualcomm said in January that it would slash $1 billion in expenses to bolster profit, a pledge made during its fight against a hostile takeover bid from rival Broadcom Inc. Qualcomm’s management team now must live up to that vow and work to solve other problems that have hampered revenue and profit growth. Annual sales have fallen every year since 2015 and are projected to decline 5 percent in fiscal 2018.

The company sees a future for its server efforts as higher-powered computing is added to cellular base stations. Those crucial parts of cellular networks will get chips that allow them to offer processing power to phones over wireless links. That capability will enable virtual reality and augmented reality in smartphones and offer an experience that’s comparable to those now only provided by personal computers, Amon said.

Servers, which crunch data in corporate networks and act as the backbone of the internet, are a much smaller market than phones and personal computers when measured by shipments. But the price that chipmakers are able to charge for each of the high-performance parts needed to run them makes the market attractive.

Qualcomm, which is awaiting approval from Chinese regulators for its acquisition of NXP Semiconductors NV, formed a joint venture in China under which it agreed to provide server designs that would be developed for the market there.